CBRE: Real-Estate sector expected to gain

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Category: Properties

Published on Tuesday, 30 April 2013 18:51

WHEN Fitch Ratings announced that it upgraded the country’s sovereign credit rating to “BBB-” from “BB+”, the country emerged on the global radar for investments and legitimately became an investment hot spot. This long-awaited but well-deserved recognition represents a vote of confidence for the Philippines, which continued to post staggering growth rates amid a weak economic backdrop. Two other major international credit rating firms, namely Standard and Poor’s (S&P) and Moody’s, still rate the country one notch below investment grade but are expected by analysts to soon follow suit.

According to Fitch Ratings, this recent move is the result of a strong external balance sheet, relatively high GDP growth rate, practical fiscal and monetary policies, and good governance. Remittances continue to be the anchor of the Philippine economy, which grew by 6.6 percent in 2012 and proved resilient amid the turbulence in the global economy. Remittances rose 6.3 percent to $21.3 billion and accounted for 8 percent of the GDP in 2012. This led to a strong net external creditor position, which means that dollar inflows outpace dollar payments overseas.

The Philippine economy can only see brighter days ahead in the aftermath of this historical feat. The Philippine Stock Exchange Index (PSEi) surged to a record high 6,847.47 points or 2.74 percent after the country received its first investment grade rating. The trend is expected to continue as the PSEi increased by 17.8 percent so far this year, which is one of the highest in Asia alongside Japan, Vietnam and Thailand.

According to Joey Radovan, vice chairman of CBRE Global Corporate Services, BPOs will occupy 80 percent to 90 percent of office space supply in 2013. More multinational corporations (MNCs) will set up BPOs in the country in order to fulfil cost reduction strategies, while current locators are preparing to expand local operations to further reduce costs. In addition, foreign insurance and financial firms are already on the move to set up operations in the country.  

Expected tracked take-up of office space will total 450,00 sq m in 2013. The Philippines’s young population makes it a very attractive market not only for BPOs, as the populations of developed nations continue to age.

There is also a growing demand for “green buildings” from foreign investors that are planning to come into the country. Reduced operational costs and improved environmental and human health are some of the benefits of these eco-friendly buildings. The Philippines is slowly catching up with this trend as there are currently 13 Leadership in Energy and Environmental Design (LEED)-certified buildings and 72 with pending evaluations. LEED is a US-based ratings system that measures the level of energy efficiency and environment friendliness of a development based on its design, construction, and operation.

The Philippines will continue to be a preferred destination of foreign companies because it offers the lowest lease rates in Asia. Makati CBD lease rates by the end of 2012 is the most cost-effective in Asia at only $26 per square feet per annum when compared to $179 in Beijing, $128 in New Delhi CBD, $111 in Mumbai BKC, $102 in Singapore, and $50 in Jakarta. “The Philippine BPO sector will continue to thrive in the next years. The country provides a conducive environment for foreign investors—an excellent pool and low cost of skilled labor, outstanding customer service, a quality destination, and one of the cheapest rental rates and highest yields in Asia,” Santos, CBRE Philippines chairman and founder, said.

In the long run, a domino effect will carry the benefits of an investment influx toward the residential and retail sectors. As foreign businesses enter the country, expatriates will look for practical accommodations such as upscale and luxury residences near business centers. It would most likely raise the demand for residential condominiums in CBDs.

Consequently, the jobs created by FDIs will elevate the spending power of the middle class, which in turn could lead to an increased ability to purchase houses or condominiums. Demand for affordable to mid-range residential segments will continue to pick up and, given the platform of low inflation and mortgage rates,  a democratized housing industry will soon emerge. Santos stated that “the Philippines is expecting democratization in the housing sector from a nation of renters to owners based on low interest rates and financing schemes.”

This multipronged reaction to an investment influx would also have an effect on the retail sector. The introduction of foreign brands into our shores and the increasing demands of the population will drive the need for additional retail spaces.

The real-estate industry will greatly benefit from an investment-grade credit rating. More investments and foreign companies will come in and its impact will be felt across key property sectors through a domino effect. A sustained growth in the office/BPO, industrial and residential sectors is expected, and it will push industry growth to even greater heights. Santos describes the current state of the industry as “the best market I’ve seen in the Philippines in the last 20 years. It reminds me a lot of the excitement and activity we saw in Hong Kong, Singapore and China during their real-estate booms in the early 2000s.”